World Cocoa and CBE markets Presentation to Global Shea 214 By Owen Wagner, LMC International, Raleigh, NC www.lmc.co.uk
Outline Background to the chocolate and CBE markets Chocolate and CBE demand trends Cocoa production Outlook
Total ingredients What is chocolate? One of the few food products with a legal definition which varies between countries 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % Milk chocolate Chocolate with CBE CBE coating Cocoa Liquor Milk powder Sugar Cocoa butter CBE
What are CBEs? Cocoa butter equivalents (CBEs) are used as a replacement for cocoa butter in chocolate. They have similar characteristics to cocoa butter and are typically a blend of an exotic fat (shea, sal, illipe, etc) and palm mid-fraction (a product of palm oil). CBEs are used either to: Reduce cost (CBEs are cheaper than cocoa butter); or Improve functionality (i.e. changing the melting point, hardness and reducing bloom). Shea stearin is the most important exotic fat used in CBE manufacture Around 9% of exported shea is used in the production of CBEs. The outlook for shea (and CBEs) is closely linked to trends in the chocolate industry and cocoa market.
Demand for CBEs depends upon: Demand for chocolate confectionery Legislation (chocolate is one of the few products that has legal definition. This varies between markets) Consumer preferences for products containing CBEs Price
Chocolate Product Production (mn tonnes) Chocolate product consumption is growing at more than 2% per annum. There are different trends between emerging and mature markets. 8 7 6 5 4 3 2 1 21 23 25 27 29 211 213 215
consumption growth index (2/1=1) Over the last decade emerging market demand for chocolate confectionery products has grown quickly, although the advanced markets still account for around two thirds of demand 16 15 14 13 12 11 1 9 2/1 22/3 24/5 26/7 28/9 21/11 212/13 Advanced Emerging
Per capita consumption (kg per annum) Emerging markets cocoa per capita consumption levels are still low, pointing towards future growth. Mature markets are close to saturation 6 5 4 3 2 1 Belgium Switzerland Norway Germany UK Ireland Austria France Denmark Slovenia Australia Finland Greece New Zealand Canada USA Netherlands Sweden Spain Czech Portugal Hungary Poland Italy Russia Slovakia Japan Brazil Romania Chile Colombia Argentina WORLD Malaysia Mexico Ukraine Korea Venezuela South Africa Philippines Turkey Thailand Nigeria Indonesia China India
Per capita consumption Income is the key driver of increased consumption (along with a growing middle class and increased urbanisation) 4.5 4. 3.5 3. Slovenia Germany UK Australia Norway 2.5 2. Czech Rep US 1.5 1..5. Russia India Korea China 1, 2, 3, 4, 5, 6, GDP per Capita
Mature market consumption has recovered in 212/13 but slowed in some emerging markets Asia/ Pacific Brazil US C&E Europe W Europe -4% -2% % 2% 4% 6% 212/13 211/12
Not all mature markets have returned to growth. German consumption has consistently fallen in the last few years. Total Solid Bars Pralines Filled Bars -4% -3% -2% -1% % 1% 2% 3% 213 212 211 21
The fastest growth is in the BRIC and ASEAN countries. However, demand is for a different type of product. Turkey Thailand Korea Indonesia India China Brazil Russia % 2% 4% 6% 8% 1% Annual growth %
' tonnes Cocoa consumption in emerging Asian markets has doubled in the last decade. Much of this is compound chocolate, ice cream, cakes, drinks, etc. 4 35 3 25 2 15 1 5 China India Indonesia Korea Thailand Turkey Other emerging Asia
The growth is largely of cocoa powder based products This is because powder based products are: Cheaper than traditional chocolate Have a lighter taste than chocolate (important for new consumers) Do not melt so easily in hot climates Where chocolate is consumed in these markets it often contains a CBE
In the longer term this points towards higher growth for powder based products Chocolate bars Source: Barry Callebaut Chocolate tablets Ice cream Tobacco Compound Chocolate Flavoured milk drinks % 1% 2% 3% 4% 5% 6% 7% Forecast growth
CBE Demand (2=1) CBE demand increasing with emerging market growth. The strong growth in the early 2s was due to changes in legislation. 2 18 16 14 12 1 8 6 4 2 2 21 22 23 24 25 26 27 28 29 21 211 212 213
Higher powder demand increased powder ratios, at the expense of butter ratios, until 212, in butter demand supported butter ratios. The ratio between prices is constantly evolving. 3. 2.5 US ratios 2. 1.5 1..5. 28 29 21 211 212 213 214 butter powder
trade unit value ($ per tonne) Shea butter prices move with cocoa butter prices, not cocoa prices. 8, 7, 6, 5, 4, 3, 2, 1, 2 21 22 23 24 25 26 27 28 29 21 211 212 213 cocoa beans cocoa butter shea butter cocoa powder
cocoa butter export unit value ($/tonne) It is cocoa butter prices that determine shea butter prices, not cocoa prices 7, 3,5 6, 5, 4, 3, 2, 1, 3, 2,5 2, 1,5 1, 5 shea butter import unit value ($/tonne) cocoa butter shea butter
$ per mt (ICE) and per mt (LIFFE) Cocoa prices have risen steadily with speculators holding record long positions 4, 3,5 3, 2,5 2, 1,5 1, 5 22 23 24 25 26 27 28 29 21 211 212 213 214 ICE 2nd Position LIFFE 2nd Position
surplus/deficit (' mt) This has occurred as the cocoa market has moved into a supply deficit 5 4,6 4 4,4 3 2 1-1 -2 4,2 4, 3,8 3,6 3,4 3,2 production/consumption (' mt) -3 21/11 211/12 212/13 213/14 214/15 3, surplus/deficit production
Production (' tonnes) Côte d Ivoire production has remained strong despite falling from 21/11 record 1,8 1,6 1,4 9 8 7 1,2 1, 8 6 4 2 6 5 4 3 2 1 Yield (kg/hectare) production Yield
The fixed grower price under new reforms has given farmers stability, but many of the long term problems remain unresolved Ageing trees, disease and low fertiliser use mean that yields remain low While the fixed price gives stability, the level has been low compared to other crops e.g. rubber, oil palm. This has encouraged some switching of production towards rubber. Cocoa farming is not attractive to younger generation who prefer to migrate to the city Improved yields key to increasing output. Newly planted hybrids yield 2 or 3 times the average.
Ghana output doubled between 2/1 and 21/11. But high inflation and depreciation of cedi means grower price is now less attractive in real terms. Production (' tonnes) 1,2 6 1, 5 8 6 4 2 4 3 2 1 Yield (kg/hectare) production Yield
' mt Indonesia output falling due to disease (CPB and VSD) and competition from other crops. Brazil and Ecuador have increased output. 6 5 4 3 2 1 Indonesia Ecuador Brazil
Cocoa supply/demand summary Second successive deficit expected in 213/14 Consumption growing faster than production Longer term supply relies on increasing yields Stock levels estimated at around 1.7 mn mt Stock/Grind ratio expected to fall to 41% in 213/14
Real price The stock grind ratio is the key determine of cocoa prices 8, 7, 6, 5, 4, 3, 2, 212/13 29/1 21/11 211/12 1, 1% 3% 5% 7% 9% Stock:consumption ratio
CBE outlook: Continued growth from emerging markets Little change in EU demand despite legislative changes No real prospects of legislative change in US Strong growth in the emerging markets. Developments in cocoa butter prices are key to determine prices.
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